Rational Expectations (Cambridge Surveys of Economic Literature)

Economists have developed models in which individuals form expectations of key variables in a "rational" manner such that these expectations are consistent with actual economic environments. In this revised and expanded second edition, Professor Sheffrin first explores the logical foundation of the concept and the case for employing it in economic analysis. Subsequent chapters investigate its use in macroeconomics, financial markets, and microeconomics. A final chapter assesses its impact on theoretical and empirical work in economics and policy arenas. The author argues that while rational expectations are still central to macroeconomic policy debates, fully workable models have not yet been devised, and offers reasons for the lack of practical and conceptual progress.